[Closed] M1 - Energy Price Freeze

That this House calls on the Government to freeze electricity and gas prices for 20 months whilst legislation is introduced to ring-fence the generation businesses of the vertically integrated energy companies from their supply businesses, to require all electricity generators and suppliers to trade their power via an open exchange, to establish a tough new regulator with the power to force energy suppliers to pass on price cuts when wholesale costs fall, and to put all over-75-year-olds on the cheapest tariff.

At the heart of this debate is a question about whether we believe that people have been overcharged and let down by a regulator that has failed to do its job, and that to win back the trust of the British people we need to mend this broken market. Today we put before the House a motion that proposes two measures to provide real help now through a temporary 20-month price freeze and by putting all those over the age of 75 on the cheapest tariff, as well as deep structural reforms to the way that this market works for the future. These are the measures that we will take if we win the next election, but these are measures that this Government could take now, for which they would have our full support.

At the outset I want to deal with a few of the myths that the Government have resorted to peddling in the absence of any credible policies of their own and because they are confused about how to respond to our proposals. The first myth is that the price freeze cannot or will not happen or that the idea is a con. Let me tell the House that there is only one situation in which this price freeze will not happen: if the Conservatives or Liberal Democrats ​win the next election. If we are elected, this price freeze will happen. The idea that a price freeze will not work if wholesale prices increase is complete and utter rubbish.

As the energy companies themselves admit, they are not buying today all the energy they need to supply their customers tomorrow. They buy their gas and electricity two, three or even four years before it is supplied, precisely in order to manage the risk of fluctuation in wholesale prices. The Secretary of State must know this, so the Government’s argument does not stand up.

The second myth is that companies will undermine the freeze either by hiking up their prices beforehand or by increasing them afterwards, but as I asked the Secretary of State at the last Energy and Climate Change questions, if companies collude to increase their prices beyond anything that can be justified before the next election, will he stop them? If he will not, let me be clear: we will take action. As for what happens after the price freeze ends, the reason it lasts for 20 months is that that is how long we think it will take to enact our reforms to overhaul this market. By that point, we will have a new regulator in place, with the power to force companies to cut their prices when wholesale costs fall, which will prevent the kind of mark-up and overcharging that we all know is happening. This price freeze will happen and it will work.

The third myth is that our proposals will deter investment. Nothing could be further from the truth. As EDF’s decision on Hinkley Point C shows, what matters for investors is long-term certainty on returns, not short-term gains based on overcharging. That is why we have supported the Energy Bill and given our backing to the framework of contracts for difference and the capacity market. And we will put right this Government’s failure to set a decarbonisation target, in order to give low-carbon investors the certainty they need to invest throughout this decade and the next.

For the past month we have seen the Secretary of State and members of the Government standing up for the big seven, rather than standing up for the consumers and businesses of this country, which are being ripped off. If we want a secure future in which investment can come forward, we need a little less bickering on the Government Benches about green levies and less fighting against what consumers want.

What we have not seen is a market that encourages competition to the extent that the energy companies strive to compete with each other on price and to win the support of their customers. That is also what the motion is about, because the fourth myth is that our proposals will somehow undermine competition, but our market reform proposals would increase competition. They would level the playing field and enable independent generators and small suppliers to compete more effectively. Of course, no energy company, big or small, wants us to do something that reduces its profits, but suppliers such as the Co-op recognise that in order to restore trust the people need to see a clean break with the past. Smaller suppliers such as Ecotricity and Ovo, which might not necessarily like our price freeze, nevertheless say that it does not threaten their viability.

The fifth myth is that the problems we see in our energy market today can somehow all be laid at the door of the previous Administration, a Labour Administration who—the House might recall—introduced winter fuel payments, which the current Secretary of State described at the time as a gimmick, insulated over 2 million homes through Warm Front and lifted over 1.5 million people out of fuel poverty. Before Labour came to power, consumers could not even switch electricity supplier. As he knows, the restriction on suppliers also being generators was removed in 1993, under the previous Conservative Government, which led to the vertical integration we have seen over the past two decades. If the Secretary of State wants to compare records, I am happy to have that debate, but I think that the public would be better served if we all engaged in a proper debate on how to reform the market for the future.

The Secretary of State might not agree with our proposals, and that is his choice. He will have to account to the 47,550 bill payers in his constituency if he opposes our price freeze in the Lobby this evening. I believe that the public deserve a proper debate. The motion presents the House with clear proposals to restore people’s faith in the energy market and get them a fairer deal, and I commend it to this House.

Thank you, Mr Speaker. I would like to associate myself with the remarks of the Rt. Hon. Member for Leeds West. I entirely agree with the sentiment that we should, as it is our duty to the people, help those who cannot afford energy during the bitter winter months. Handing out allowances is a good way of ensuring that people can afford warmth this Christmas but it just isn't viable - We need to act before we are handing out more and more in welfare and having less and less to show for it in terms of actually helping. As my Rt. Hon. friend said 1.5 million people were elevated from Fuel poverty through this programme - Which admittedly, has cost a large sum of money but it is worth it because that is what the state is here to do. Help people, not grab money and push people out. I have no doubt that this chamber will recognise the fact if prices rise consumers face greater costs, and so our payments will cover less. There are 3 solutions; The first, I'm sure some of the benches opposite will propose; Ignore it and withdraw payments. This is a very bad idea, Mr Speaker, we have a situation where 2 million fewer people are in fuel poverty, I will not risk their warmth and lives, and I warn members opposite not to risk them either. The second, I'm sure members of my benches would support which is to increase the payments. Another bad idea; We would be paying out more and more to big companies who we are taxing less, and thus wasting money. The cost of welfare would rise periodically, which I think despite efforts from any side of the house, Mr Speaker, would not be at all sustainable in an attempt to balance the books.

We have one final option, a cap. Ah- Now there's bally well excellent idea. We may control the rises so that welfare payments don't have to rises unexpectedly. We may control how the energy sector forces more people into fuel poverty. We may control the differences between the cost of product and price. I see no flaws with a device, Mr Speaker, that allows us to protect those on the fuel poverty line, just above or below it, but also ensure that excessive profits do not come at the expense of households or the taxpayer or even lives. So Mr Speaker, if we don't implement this, we face continually rising costs in welfare payments, and more and more people slipping into fuel poverty. If we do, we can control costs and get a good deal for energy users. It is time we acted to save the British people from the chilling;y dark record of the utility companies. Freeze prices before they freeze homes.

Mr Speaker I am staggered by the sheer lack of economic credibility and understanding being shown by the opposition today. The party of record deficits, spiralling debt, and economic malpractice think that they alone are able to stand in this House and preach from the gospel of government intervention to fix a market. Not only do they want to intervene Mr Speaker, indeed they wish to freeze prices.

Mr Speaker the 1970s called, they want their economics back.

Mr Speaker, centralised pricing is a dangerous game when it is played by competent economists. When a half hearted populist gimmick such as this is brought to the party you get a price hike before the freeze and then you get a price hike after the freeze has ended. This is because the energy market, like the rest of us, are currently bereft of any clairvoyant abilities. They can no more see the future than I or any other man, woman, or child can, so to hedge against the risk of future wholesale instability they insulate themselves with a front loaded price hike.

Mr Speaker, the answer to the energy price issue is not to simply roll up our sleeves and bring in more and more big government, that would cripple the market and damage our economy which has only just turned the corner from Labour's recession. The answer is to bring in the Competition and Markets Authority. Energy is an oligopolistic market, there are six energy firms that dominate, we must be prepared to take whatever steps are necessary to bring competition to this market and we must do so without delay. Competition, not big government, is the mechanism through which standards rise and prices fall simultaneously. Imperfect competition leads to markets not functioning properly as we are seeing in energy, let's cure the disease at the heart of this issue rather than fretting about gimmicky symptom treatment.

Mr Speaker, it is clear us on these benches and to the public at home that the government is too interested in playing 'Point the finger' for the global financial economic crash than actually help the average family. Whilst I accept that the Rt. Hon. member for North East Bedfordshire may have concerns about another hike it is clear that more competition isn't nearby. The 6 main suppliers are making profits of nearly £1.1 billion a year, Mr Speaker. This is not something a start-up can easily survive with. The party opposite, Mr Speaker, is obsessed with competition. Whilst in the small markets this is good, In the massive markets, there is an oligopoly which only benefits the handful of companies. Whatever the benches opposite, Mr Speaker, may spout about 'Back to the seventies' - The truth is that in the 1970s there were big nationalised monoliths that were unresponsive to the public, just as today, Mr Speaker, we have privatised monoliths which are also unresponsive. They had to change then, and they have to change now. The public doesn't see ever-rising energy prices as a right-left issue. They see it as a right-wrong issue. It is our job to decide if we act now and create a better market for the families at home, or we do nothing and let prices rise again and again, and with that the demand and size of welfare payments.

I note also, Mr Speaker, the party opposite has nothing to say regarding the successes of Labour policy which has taken 2 million people out of fuel poverty, the party opposite has nothing to say regarding the opposing statements given at the time which were borne out to be untrue, Mr Speaker. Frankly, Mr Speaker, for all the waffle the Government backbenchers do there is very little substance indeed that suggests anything they say is likely - When prices of food, luxuries and necessities rise, household bills rise too. Yet when these prices fall, household bills don't. And the public is thoroughly sick of being overcharged - The Tory party must pick which side it's on, the public or the privilege?

This Government has seen monolith company profits rise whilst poverty also rises. Why should the tax payer give a penny more to giant monoliths that do nothing for them except add a burden to household finances. For Labour to propose a 20-month freeze while the market is reset is not going back to the 70s. A better parallel is the 90s. It was in 1997 that Tony Blair and Gordon Brown introduced a windfall tax on the privatised utility companies. At the time the company bosses, and the Tories, rejected the idea. But the British public overwhelmingly supported it. Frankly, Mr Speaker, the dejected ‘wait and see’ tactics of the Tories will not work, the consequence of this government is that the prices that were going to rise, are still going to rise, and the people that were going to freeze are still going to freeze. Is it not the case Mr Speaker that the result of the this Conservative government is more poverty, more pain and most of all, more payments.

It is heartwarming to hear the Hon. Member for Darlington finally admitting that the privatization of energy companies in the seventies and eighties under the late Lady Thatcher was, in fact, a necessary reform. Better late than never, I say.

However, Madame Speaker, that is where my glowing praise for his involvement in this debate ends. For his response, and the one from the Opposition frontbench, is not to assist the creation and operation of smaller, regional energy companies which will enter the market and lower prices for consumers by so doing, but to arbitrarily and artificially freeze the price of energy so that those six companies who currently operate will be able to hike the prices before and hike them after. This is, Mr. Speaker, a most unsuitable situation for the average couple.

This really is basic economics, Mr. Speaker: when prices are high, and demand is inelastic, then it is the supply which must change. That is precisely the situation in which we find ourselves. We want the prices to go down, the demand is not going to go down, so the supply must go up. It is incumbent upon any government, then, to assist with the start up of new energy generation companies who will be able to enter the market, increase the supply, and thus lower the price. The Hon. Member for Darlington said it himself: there are billion-pound profits to be had. Is it, then, so hard to imagine that a number of capable, intrepid Britons with some engineering know-how would want a piece of that pie? The problem is that the barriers to entry are great and the margins of error are slim. That, Mr. Speaker, is where government comes in.

I will be voting against this motion if it should ever reach division because I do not believe that a socialist five-year plan brought in by some technocratic functionaries is the best way to help Britons. I believe that if we help Britons to help themselves, then we will find that they are, indeed, happier, healthier and have more pounds in their pockets. Furthermore, I believe we are presented with a very valuable opportunity to improve local economies, create local jobs, and keep some control over affairs within communities by encouraging the creation of private, regional energy companies who will be able to operate at reduced costs and pass those savings on. This is the way of the twenty-first Century, Mr. Speaker: local helping local, freely and fairly. The socialist central plan is the way of the last Century and if the opposition is alright with it, I'd just as well leave it there.

Rt. Hon. Barclay Calhoun
MP for New Forest West
Shadow Leader of the House
Shadow Secretary for Culture, Media and Sport
Greater Britain Committee

In brief, it seems to me more efficient and expedient to impose price controls, rather than establishing a permanent layer of bureaucracy whose role is to impose something exactly like price controls except far more complicated.

How we deal with the big energy companies and their impact on consumer bills is important. What I am concerned about is the impact of energy bills on the cost of living, but the way Labour plan is put forward for long term, and also in fact in the near term, we will have a profound impact in driving up the cost of energy for all.Labour plan is short sighted because their plan created will lock out competition, raise the cost of capital and drive away foreign investors, making it harder to attract the investment needed into the sector. What we really need is to deliver transparency, longevity and certainty and labour has no clue how to achieve this.

Our energy market is clearly not currently functioning as the British public expect, or would like. There are inefficiencies in a private model, just as there were in the public model that followed beforehand. What is clear to me, though, is simple. The solution is not going to be as heavy handed as a price cap. If we want to bring energy prices down, we need to introduce serious competition to the market. That means investing heavily in green energy, something that the coalition is very proud to be pursuing. It also means introducing elements of competition to the Big Six, and ensuring that every company is accountable.

The energy security and safety of the British public is best served through long-sighted investments in renewables, and more competition, both between energy suppliers, and between different types of energy production. Price caps do not work, and are not the solution.

I do empathise with the views being brought forward by the Members opposite. I understand their frustrations and their agitation. But I cannot support this motion. It is a heavy-handed blunt measure proposed to tackle a tool that requires, not soundbites, but sensitive, pragmatic, detail-oriented solutions. It is rife with risks of severe unintended consequences, on the one hand, and on the other hand, a real potential that it will be a mere short-term fix, sweeping under the rug the real structural issues in our energy market. I do accept that the motion as written puts some thought into long-term structural fixes, but the fundamental mistake in this motion is that it puts the flashy short-term gimmick policy first, rather than inviting a frank and constructive debate on their proposed long-term fixes. If they want to debate their energy policy, I urge them to submit the motion with this poorly constructed price freeze idea removed.

Now, why do I oppose the price freeze? One area where I strongly disagree with the party opposite is their claim that this policy preserves, or even promotes, the benefits of competition. Now, when I make that point, I am happy to see them acknowledge the importance of competition - on that, we do agree. But this motion risks competition, it risks the viability of having a network of small and medium-sized suppliers and providers, and it threatens market access and market growth for those companies that want to challenge the hegemony of the Big Six - who, let's not forget, emerged as a looming oligopoly under the last Labour administration. To illustrate one such scenario where a price freeze might have an anti-competitive effect, let us suppose that the wholesale prices on international markets shoot up. The larger companies will be able to absorb those costs. Start-ups and smaller companies, regional companies, will often not. Most of the price of the raw commodities involved in energy production falls outside of government control, and while there are other factors that impact the actual tariffs consumers pay that we can exert more influence over, I think a policy that hamstrings the ability of businesses to respond to such fluctuations is inviting catastrophe.

I must also take issue with the argument that this policy does not imperil investment. It does. Again, the member from Leeds West starts with the correct premise. Investors, in energy as much as any other sector, care more about long-term certainty than short-term price gouging. In an industry as volatile to price shocks as energy, institutions are one of the few sources of certainty these companies can rely on. So on that, we agree. But where we disagree is that I believe investors will not exactly see long-term certainty when they see politicians wanting to place arbitrary and inflexible restrictions on pricing, or display a willingness to impose ill-thought-out simplistic policies to confront complex issues. Investors want rational policy, interventions that are justified and fair-handed, not the risk of blunt and poorly implemented state interventions in markets.

If prices are capped, or frozen, we also face the risk of consumers being lulled into a false sense of security, being conned into this myth that thanks to the price freeze they are now necessarily getting a good deal. It is very important to point out that this is not the case. As we all know, switching providers is often the best way to secure a cheaper, fairer tariff. If we go ahead with a freeze, we risk sending the message that there are no longer benefits to such savvy consumer behaviour, and we risk removing incentives for households to look out for the best deal that could save them hundreds of pounds. This isn't just bad for individual families. By extension, we will be reducing the competition that does act as a check - an imperfect check, admittedly - on the situation getting worse. This is especially damaging if, as all members will likely agree, many current prices are unfair, are distorted, do reflect unfair practices. Under a price freeze, there is a real risk that there will be fewer incentives for providers to reduce tariffs that are currently extortionate and egregious. Is this a guaranteed outcome of the concept of a price freeze? No. But it is one that I fear the motion's proponents have not been cognizant of in designing this proposal as it currently stands.

So what is the Liberal Democrat solution? What are we pushing for in government? We are working to open up the market, increase competition, make switching easier and less intimidating, and improve the options for microgeneration and energy efficiency. And we have made, and will continue to make, the investments needed to unlock the true energy potential, especially in renewable and green energy, of the United Kingdom. Under the coalition, energy infrastructure investments have led the way, as the lion's share of this country's investment choices. The average annual investment in renewables has almost doubled. The Green Investment Bank, first of its kind in the world, has been established. We have the world's largest offshore wind farm. The UK is leading Europe in carbon capture and storage. Up to a quarter of a million jobs could be created in low carbon energy generation by 2020.

And, if we are smart about this, if we allow innovation and investment to thrive in the private as well as the public sector, we can capitalise on these investments, and achieve that holy grail of energy policy. Clean energy, reliable energy, affordable energy. Short-sighted gimmicks, though well-intentioned, threaten that prospect. I will be voting against this motion, and I urge my colleagues to join me.

Graham Adiputera (Lib Dem - Sutton and Cheam)
Secretary of State for Business, Energy and Climate Change
Secretary of State for Culture, Media and Technology

Mr. Speaker, I wish to associate myself with the remarks of my Honourable Friend the Member for Montgomeryshire. I believe the people of this country want, and deserve, a better deal. More light must be shed on the way energy companies operate, and the way the whole supply chain does too. The free market has undoubtedly helped us to achieve levels of living standards previously unseen in our history. But as my Honourable Friend pointed out so brilliantly, we must not be blind to its shortfalls. First, to operate freely and competitively, a market needs - well - competitiveness. Furthermore, I actually find myself in partial agreement with the members opposite in the need to create an effective regulator, who can monitor and exercise authority over how the market operates. That is what we do in so many areas where the United Kingdom has shown global leadership - take the banking or universities, or overall service sectors for example.

However, I do not believe that price caps, who take no account of regional differences, nor the changing and dynamic nature of a market, are the right way forward. I also believe that it is wrong to exercise discrimination, albeit positive discrimination, against one group or another. This motion raises the right question, but I am afraid gives a fundamentally flawed and proven wrong answer from the Labour frontbench.

Earlier, I asked what price was to be frozen. As far as I am aware, no one has actually said exactly what price is to be frozen. When we speak of energy "prices" we can mean one of two things. To the energy company the price refers to the unit rate and standing charge, to the consumer, the ordinary man in the street, price refers to the monthly/quarterly/annnual bill. We need to know what is actually to be frozen - because a freeze on unit rates and standing charges will mean that over the next 20 months that one's unit rates or standing charges cannot increase. Many people are already on a fixed or frozen tariff, and if their energy company is offering a 2 or 3 year fix or freeze, then this motion does not benefit them - it does not make energy more affordable for those who are struggling to pay their bills. A freeze on unit rates/standing charges will not be a freeze on how much one pays each month, because a freeze on an electricity unit rate, for example, is a freeze on how much one can be charged per unit of electricity used, not how much one can be billed in a particular period of time.

If it is to be a freeze on how much one is actually billed, and by that I mean the actual monthly/yearly/annual cost- this will only make things worse for both company and consumer. For company it means that each and every one of their customers can use as much electricity and gas as they want, but only pay a set amount - this will mean that the companies will lose money, as consumers are not being billed for their usage. This will also have a negative effect on the environment, as having a no-limits usage policy means that people do not need to worry about what they are consuming.

For the consumer, however, a price freeze means that "prices" cannot go down. This means that an energy compaany cannot offer cheaper unit rates for 20 months, if the freeze is on the unit rates/standing charges. It also means that one's monthly/quarterly/annual bill cannot be reduced. We all use less electricity and gas in summer than we do winter. How does a freeze on what a customer is billed for 20 months help them, if the company cannot charge them less when they are using less?

I have great issue with forcing the energy companies to put the over-75s on their cheapest tariff - because the cheapest tariff is not always the best tariff for an individual. Suppose the cheapest tariff has exit fees? Suppose the cheapest tariff requires one to have both gas and electricity with the same supplier? Suppose the cheapest traiff has to be paid by Direct Debit? Suppose the cheapest tariff requires online access only? Are we to force our elderly onto this?

Reform is needed of the energy companies, yes. We need to make sure that there is more duty of care from the company to the customer. We need to make sure that all energy companies are more lenient with those who cannot pay their bills - however this misguided, short-sighted, headling-grabbing, sound-biting mess of a motion is not the way to do it!

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